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A Mean-Variance Framework for Tests of Asset Pricing Models

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  • Kandel, Shmuel
  • Stambaugh, Robert F

Abstract

This article presents a mean-variance framework for likelihood- ratio tests of asset pricing models. A pricing model is tested by examining the position of one or more reference portfolios in sample mean-standard-deviation space. Included are tests of both single-beta and multiple-beta relations, with or without a riskless asset, using either a general or a specific alternative hypothesis. Tests with a factor that is not a portfolio return are also included. The mean-variance framework is illustrated by testing the zero-beta CAPM, a two- beta pricing model, and the consumption-beta model. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

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Bibliographic Info

Article provided by Society for Financial Studies in its journal Review of Financial Studies.

Volume (Year): 2 (1989)
Issue (Month): 2 ()
Pages: 125-56

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Handle: RePEc:oup:rfinst:v:2:y:1989:i:2:p:125-56

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Cited by:
  1. Kandel, Shmuel & Stambaugh, Robert F, 1995. " Portfolio Inefficiency and the Cross-Section of Expected Returns," Journal of Finance, American Finance Association, vol. 50(1), pages 157-84, March.
  2. Campbell R. Harvey, 1994. "Predictable Risk and Returns in Emerging Markets," NBER Working Papers 4621, National Bureau of Economic Research, Inc.
  3. Post, G.T., 2001. "Testing for Stochastic Dominance with Diversification Possibilities," ERIM Report Series Research in Management ERS-2001-38-F&A, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
  4. Fabio Maccheroni & Massimo Marinacci & Aldo Rustichini & Marco Taboga, 2004. "Portfolio Selection with Monotone Mean-Variance Preferences," ICER Working Papers - Applied Mathematics Series 27-2004, ICER - International Centre for Economic Research, revised Dec 2004.
  5. Ronald J. Balvers & Dayong Huang, 2005. "Evaluation Of Linear Asset Pricing Models By Implied Portfolio Performance," Working Papers 05-06old2 Classification-, Department of Economics, West Virginia University.
  6. Kim, Daehwan, 2012. "Is currency hedging necessary for emerging-market equity investment?," Economics Letters, Elsevier, vol. 116(1), pages 67-71.
  7. Kandel, S. & McCulloch, R. & Stambaugh, R.F., 1991. "Bayesian Inference and Portfolio Efficiency," Weiss Center Working Papers 8-91, Wharton School - Weiss Center for International Financial Research.
  8. Javid, Attiya Yasmin, 2008. "Time Varying Risk Return Relationship: Evidence from Listed Pakistani Firms," MPRA Paper 37561, University Library of Munich, Germany.
  9. Post, G.T., 2002. "Testing for Third-Order Stochastic Dominance with Diversification Possibilities," ERIM Report Series Research in Management ERS-2002-02-F&A, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
  10. Attiya Y. Javid & Eatzaz Ahmad, 2008. "The Conditional Capital Asset Pricing Model: Evidence from Karachi Stock Exchange," PIDE-Working Papers 2008:48, Pakistan Institute of Development Economics.
  11. Simon Stevenson, 2000. "International Real Estate Diversification: Empirical Tests using Hedged Indices," Journal of Real Estate Research, American Real Estate Society, vol. 19(1), pages 105-131.
  12. A. Craig MacKinlay, 1994. "Multifactor Models Do Not Explain Deviations from the CAPM," NBER Working Papers 4756, National Bureau of Economic Research, Inc.
  13. Claessens, Stijn, 1993. "Equity portfolio investment in developing countries : a literature survey," Policy Research Working Paper Series 1089, The World Bank.
  14. Wayne E. Ferson & Andrew F. Siegel, 2006. "Testing Portfolio Efficiency with Conditioning Information," NBER Working Papers 12098, National Bureau of Economic Research, Inc.

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